A State Department contractor adjust a Pakistan national flag before a meeting between U.S. Secretary of State John Kerry and Pakistan's Interior Minister Chaudhry Nisar Ali Khan on the sidelines of the White House Summit on Countering Violent Extremism a

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By Idrees Ali

WASHINGTON (Reuters) - Pakistan's continued support for resurgent militant groups hostile to the United States, coupled with warming U.S. military and business relations with India, is sharply diminishing Islamabad’s strategic importance as an ally to Washington, U.S. military, diplomatic, and intelligence officials and outside experts said.

The United States has cut both military and economic aid to Pakistan sharply in recent years, reflecting mounting frustration among a growing number of officials with the nuclear-armed country's support for the Taliban in neighboring Afghanistan.

That frustration has dogged U.S.-Pakistan ties for more than a decade, but has spiked anew as the militant Islamic group has advanced in parts of Afghanistan that U.S. and allied forces once helped to secure, U.S. officials and analysts say.

"We're seeing a very definitive and very sharp reorienting of U.S. policy in South Asia away from Afghanistan-Pakistan and more towards India," said Michael Kugelman, a South Asia expert with the Woodrow Wilson Center, a Washington think-tank.

(For graphic showing U.S. annual military and civilian aid to Pakistan since 2011 click http://tmsnrt.rs/2boG04J)

The U.S. relationship with Pakistan has long been a transactional one marked by mutual mistrust, marriages of convenience, and mood swings.

The long-standing U.S. frustration with Pakistan's refusal to stop supporting the Taliban, especially within the U.S. military and intelligence community, is now overriding President Barack Obama's administration's desire to avoid renewed military involvement in Afghanistan, as well as concerns that China could capitalize on fraying ties between Washington and Islamabad, the U.S. officials said.

Obama announced last month he would keep U.S. troop levels in Afghanistan at 8,400 through the end of his administration, shelving plans to cut the force in half by year end.

American civilian and military aid to Pakistan, once the third-largest recipient of U.S. foreign assistance, is expected to total less than $1 billion in 2016, down from a recent peak of more than $3.5 billion in 2011, according to U.S. government data. The United States has not appropriated less than $1 billion to Pakistan since at least 2007.

The decrease also comes amid budget constraints and shifting global priorities for the United States, including fighting Islamic State militants, a resurgent Russia and an increasingly assertive China.

In March, Republican Senator Bob Corker, chairman of the Senate Foreign Relations Committee, said he would seek to bar $430 million in U.S. funding for Islamabad's purchase of $700 million of Lockheed Martin Corp. F-16 fighter jets.

Earlier this month, Secretary of Defense Ash Carter refused to authorize $300 million in military reimbursements to Pakistan, citing the limited gains the country has made fighting the militant Haqqani network, which is based in the country's tribal areas bordering Afghanistan. The approval of such funding has been mostly routine in the past.

LIMITS OF COOPERATION

The U.S. Congress has yet to authorize hundreds of millions of dollars in aid to Pakistan for the next fiscal year. The Pentagon is due to authorize $350 million in military aid for the next fiscal year, and is unlikely to approve it under the Obama administration, a U.S. defense official said, speaking on the condition of anonymity.

"Congress is no longer willing to fund a state that supports the Afghan Taliban, which is killing American soldiers," said Bruce Riedel, a Brookings Institution expert and former CIA officer who headed Obama's first Afghanistan policy review.

In a stark illustration of the limits of U.S.–Pakistan cooperation, the United States killed Taliban leader Mullah Akhtar Mansour in a drone strike in Pakistan’s remote Baluchistan region in May, without informing Pakistan.

Some U.S. officials still warn of the dangers of allowing relations with Pakistan to deteriorate. In a July 26 opinion piece in the Financial Times, Senator John McCain, chairman of the Senate Armed Services Committee, argued that "the strategic imperative for improved relations between the U.S. and Pakistan is clear - for the safety of American troops and the success of their mission in Afghanistan, for the stability of the region and for the national security of both Pakistan and the U.S."

A senior Pakistani defense official said the United States will continue to need Pakistan in the fight against terrorism. Authorities in Islamabad have long rejected accusations that Pakistan has provided support and sanctuary to militants operating in Afghanistan.

“We have lost over a hundred billion dollars in fighting terrorism, which is more than anything they have given us," said the official, speaking on condition of anonymity.

In any event, the official said, Pakistan can turn to other sources of aid, including China. Last year the two countries launched a plan for energy and infrastructure projects in Pakistan worth $46 billion.

Nevertheless, the U.S. tilt toward India, Pakistan's arch-foe, is likely to continue.

U.S. defense companies including Lockheed Martin and Boeing Co. are entering the Indian market, and the country has become the world's second-largest arms buyer after Saudi Arabia, according to data compiled by the Stockholm International Peace Research Institute.

Earlier this year, India and the United States agreed in principle to share military logistics, as both sides seek to counter the growing maritime assertiveness of China.

(Reporting by Idrees Ali in Washington. Additional reporting by Tommy Wilkes and Mehreen Zahra-Malik in Islamabad.; Editing by John Walcott and Stuart Grudgings)